An important reminder as we head into what could be a very ugly week for stocks

Before we get to the “important reminder,” the following chart is from the dynamic web-report, OECD Economic Outlook, June 2020, put out by the Organisation for Economic Co-operation and Development (OECD) twice a year.

This highly followed report illustrates what Fed Chairman put into words in his recent speech, following the central bank’s two-day policy meeting.

What the OECD report concludes is a stark reminder for stock investors: “The COVID-19 pandemic is a global health crisis without precedent in living memory. It has triggered the most severe economic recession in nearly a century and is causing enormous damage to people’s health, jobs and well-being.”

OECD

If the above chart is difficult to read, here’s a link to the report you’ll easily find the chart in, http://www.oecd.org/economic-outlook/june-2020/.

The OECD chart best illustrates the current reality about where we are and the prospect of a back to normal jobs/economy environment.

As far as a stock investor, you have to consider first:

Stock values are no longer overvalued, they are outrageous.

They are extremely disconnected from their fundamental driver (the economy) and are now showing major signs of buying mania among individual investors.  So….

Important Reminder

(for day traders too)

Source: Lance Roberts

The economy and stocks

You have to follow historical reasonable growth expectations of aggregate demand driven by the number of employed to back into an estimate of the fair level/value of stocks. If the number of employed is now back to 2002 levels, the economy was growing at 2-3% pre-February, Japan (3rd largest economy) was in recession, China (2nd largest economy) was headed into recession before the virus hit, then I think you can safely say it is very dangerous time to own stocks in any way shape or form across any account type (non-qualified brokerage, qualified 401k,403b), regardless if you are 3-5 years or more from retirement.  

Because the economy/GDP eventually is

reflected in corporate profits/stock prices

For some more information on aggregate demand, back to normal, and the stock market:

https://quantitativefiduciary.com/aggregate-demand-back-to-normal/

Print Friendly, PDF & Email